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RRA - Item 4 - Consideration of Developer Agreement - Builder's Square - Internal Files Box 069ROSEMEAD REDEVELOPMENT AGENCY A 8838 VALLEY BLVD., ROSEMEAD, CA 91770* (818) 288-6671 • Telecopier 8183079218 TO: HONORABLE CHAIRMAN AND MEMBERS ROSEMEAD REDEVELOPMENT AGENCY FROM: FRANK G. TRIPEPI, EXECUTIVE DIRECTOR~j / DATE: MARCH 21, 1991 RE: CONSIDERATION OF DEVELOPER AGREEMENT - BUILDER'S SQUARE This item was continued from the February 26, 1991 Agency meeting in order to provide additional information and address concerns raised by Board Members regarding: (1) the proposed Agency contribution of up to $250,000 towards the costs of covering the wash, and (2) the fact that, in connection with the Developer's sales tax guarantee and the Agency's obligation to reimburse an equal amount of newly created property tax increment, the Agency would be obligated to pay 80% of the tax increment generated by the project, yet, due to the pass through agreement with the County Fire Protection District and housing set aside requirements, only 63% of new tax increment revenues from the project are actually expendable for such purposes. 1. Agency contribution to covering the wash if a family style restaurant approved by the Agency is developed. restaurant. However, this does not provide the Agency with any assurance that a family restaurant will be developed on the Site, nor can the Developer, at this stage, guarantee such development. The Agency contribution is designed to encourage the Developer to develop a family restaurant. AGENCY AGENDA MM 2 6 1981 ITEM No. 4- The Agreement requires that any restaurant developed in Phase II of the project be larger than 3,000 square feet and not be a fast food Page 2 The Developer hopes to attract a family restaurant tenant with below market rent. It has asked the Agency to assist in site preparation costs so as to better enable the provision of such a financial incentive. Accordingly, the agreement provides that if the Developer develops a restaurant and requests assistance, the Agency will pay 1/2 of the construction costs of covering the wash (not to exceed $250,000) and the Agency in return will have the right to require the development of a family restaurant and to approve the tenant. The provisions regarding the Agency contribution to the wash and Agency approval of the tenant are not "deal points" for the Developer. If the Agency Board wishes to eliminate these provisions in their entirety, and proceed with the balance of the Agreement, the Developer is amenable to doing so. 2. The Developer' sales tax revenue guarantee and the Agency's obligation to repay Developer. After hearing the Board's concerns at the last meeting, and due to its own concerns regarding completion of construction under an increasingly tight time schedule, the Developer now proposes: (1) that the five-year sales tax guarantee commence July 1, 1992 rather than January 1, 1992; and (2) that the Agency's obligation to refund sales tax guarantee payments from tax increment generated by the project be limited to net tax increment; i.e. the 63% actually available to the Agency. The Agreement has been changed accordingly, and the Developer has presented us with the enclosed explanation of the Agreement and "Summary Tax Analysis" to show its sales tax and property tax projections. The salient features of the guarantee as revised are: A. For 5 years commencing July 1, 1992, the City will be guaranteed $105,000 (adjusted by the cost of living) of sales tax revenues from the Site. The City presently gets no sales tax revenues from the Site. B. To the extent the Developer compensates the City pursuant to the sales tax guarantee, the Agency will reimburse the Developer from any increased revenues it receives from the project that are available for such payments. Revenues to the Agency attributable to the current assessed valuation of the property will not be affected. The Site Plan for the Builder's Square building is attached for your consideration. Page 3 Following your review and making any amendments, staff recommends that the Agency take the following action: 1. Determine whether to include or delete the provision regarding Agency contribution to the flood control channel and approval of the restaurant tenant, and if it is to be included, approve Resolution No. 91-6 allowing the Redevelopment Agency to pay for a portion of the costs of the flood control channel improvements. 2. Approve the Agreement with the developer and authorize the Chairman to execute the agreement on behalf of the Agency. 3. Approve the attached Site Plans, Exhibit A and Exhibit B. FGT:js A:032691j(13) THE DEVELOPMENT PARTICIPATION The participation agreement is a two-part document. The first part is a revenue guarantee to the City of Rosemead. The second part is a cost-sharing agreement for covering the open flood control channel on the project site. THE SALES TAX GUARANTEE The revenue guarantee portion of the agreement will insure that City revenues will be equal to or greater than those realized before Builder's Square vacated the property. While the agency has expressed a preference for a single tenant user such as K-Mart, the developer has not been able to attract a comparable user who is able to pay economic rents. Accordingly, their plan is based upon a mixed-use project. In order to gauge the fiscal impact of this plan, a tax study was commissioned that projects an additional $20,000 to $30,000 in sales tax revenues(see attached). In addition, the project will also generate approximately $40,188 in new property tax revenues after the Low-Mod Housing portion and the county pass-through are netted out. Thus, an additional $60,000 to $70,000 of annual City revenue is projected. If these projections are not born out, this agreement guarantees a base sales tax revenue of $105,000. If sales taxes fall below the guaranteed $105,000 by an amount exceeding the "new" property taxes generated, the developer will make up the difference subject to reimbursement by the agency of the property tax increment as shown in the attached projections. FLOOD CONTROL CHANNEL COST SHARING The cost sharing agreement for covering the flood control channel will benefit the redevelopment area in two respects. First, it will provide private funds that will compliment the Garvey Avenue road project by improving the safety and appearance of the channel and the intersection. Second, it will give the agency more control over the use of the site. If the developer requests the Agency to participate in the costs to cover the flood control channel, this agreement gives the Agency discretionary powers with respect to tenant selection. The agency has expressed preferences for the use of the space for a "family style" restaurant. If the Agency does not approve the proposed tenant, or the developer does not choose to rent to a "family style" restaurant, the Agency will not pay any costs in covering the channel. SUMMARY TAX ANALYSIS PROPERTY TAX An independent tax study of the site by Natelson Lavender Whitney, Inc., indicates a new property tax base that will nearly triple from the current valuation. Assessed Value Upon Completion $10,000,000 Existing - 3,318,417 Increased tax base $ 6,681,523 This will result in an annual revenue increase of approximately $66,816. After the Low-Moderate Housing allotment and the 17% County pass-through are expended, this will result in a balance of $40,188 in new funds. SALES TAXES The proposed development is projected to generate up to $14,583,500 in taxable sales. Sq. Ft. $/Sg. Ft. Sales Supermarket 25,000 $175 $4,375,000 Retail Shops 34,700 $175 $6,072,500 Restaurant 15,040 $275 $4,136,000 Services 3,855 -0- -0- Vacancy 2,039 -0- -0- Total 80,624 14,583,500 This will result in approximately $146,000 annual sales tax revenues flowing to the City. GUARANTEE MECHANISM Guaranteed Amount $105,000 Projected property tax increase less allotments & pass-through - 40,188 Tax Floor $ 64,812 For example, if the sales tax generated by the project is $1.00 - $64,812, the amount necessary to achieve $64,812 will be paid by the developer without any credit on the increased tax increment. However, once the Sales tax reaches $64,812 but is less than $105,000, the Agency will reimburse developer in an equal amount from tax increment generated.